UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

                          -----------------------------

                                    FORM 10-Q

                QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
                     OF THE SECURITIES EXCHANGE ACT OF 1934


          APRIL 30, 2005                                  0-11088
---------------------------------                         ----------------
For the quarterly period ended                            Commission file number

                              ALFACELL CORPORATION
                              --------------------
             (Exact name of registrant as specified in its charter)


           DELAWARE                                      22-2369085
-------------------------------                          ----------
(State or other jurisdiction of             (I.R.S. Employer Identification No.)
         organization)

               225 Belleville Avenue, Bloomfield, New Jersey 07003
               ---------------------------------------------------
               (Address of principal executive offices) (Zip Code)


(Registrant's telephone number, including area code)         (973) 748-8082
                                                             --------------


                                 NOT APPLICABLE
                                 --------------
                          (Former name, former address,
             and former fiscal year, if changed since last report.)


      Indicate by check mark  whether the  registrant  has (1) filed all reports
required to be filed by Section 13 or 15(d) of the  Securities  Exchange  Act of
1934  during  the  preceding  12 months  (or for such  shorter  period  that the
registrant was required to file such reports),  and (2) has been subject to such
filing requirements for the past 90 days.  YES _X_ NO ___

      Indicate by check mark whether the registrant is an accelerated  filer (as
defined in Exchange Act Rule 12b-2).  YES _X_ NO ___

      The number of shares of common stock,  $.001 par value,  outstanding as of
June 6, 2005 was 36,455,335 shares.

<PAGE>


                              ALFACELL CORPORATION
                          (A Development Stage Company)

PART I. FINANCIAL INFORMATION

Item 1. FINANCIAL STATEMENTS

                            CONDENSED BALANCE SHEETS
                        April 30, 2005 and July 31, 2004

                                                       April 30,     July 31,
                                     ASSETS              2005          2004
                                     ------           (Unaudited)   (See Note 1)
                                                      -----------   -----------

Current assets:
  Cash and cash equivalents                           $ 3,896,759   $10,147,694
  Short term investments at market which
    approximates cost                                   1,993,644            --
  Other current assets                                    202,122        64,771
                                                      -----------   -----------
      Total current assets                              6,092,525    10,212,465

Property and equipment, net
                                                           77,548        56,783
Loan receivable, related party                            158,994       151,815
                                                      -----------   -----------
      Total assets                                    $ 6,329,067   $10,421,063
                                                      ===========   ===========

                      LIABILITIES AND STOCKHOLDERS' EQUITY
                      ------------------------------------

Current liabilities:
  Notes payable, net of $0 debt discount at
    April 30, 2005 and $34,120 at July 31, 2004       $   200,000   $   372,611
  Accounts payable                                        430,017       541,600
  Accrued expenses                                      1,028,389       625,205
                                                      -----------   -----------

      Total liabilities                                 1,658,406     1,539,416
                                                      -----------   -----------

Stockholders' equity:
  Preferred stock, $.001 par value;
    Authorized and unissued, 1,000,000 shares at
      April 30, 2005 and July 31, 2004                         --            --
  Common stock, $.001 par value;
    Authorized 100,000,000 shares at April 30, 2005
      and July 31, 2004;
    Issued and outstanding, 35,255,445 shares at
      April 30, 2005 and 34,347,885 shares at
      July 31, 2004                                        35,255        34,348
  Capital in excess of par value                       78,390,643    77,891,815
  Deficit accumulated during development stage        (73,755,237)  (69,044,516)
                                                      -----------   -----------

      Total stockholders' equity                        4,670,661     8,881,647
                                                      -----------   -----------

      Total liabilities and stockholders' equity      $ 6,329,067   $10,421,063
                                                      ===========   ===========

See accompanying notes to condensed financial statements.

                                     - 2 -
<PAGE>


                              ALFACELL CORPORATION
                          (A Development Stage Company)

                       CONDENSED STATEMENTS OF OPERATIONS

           Three Months and Nine Months Ended April 30, 2005 and 2004,
                       and the Period from August 24, 1981
                      (Date of Inception) to April 30, 2005

                                   (Unaudited)

<TABLE>
<CAPTION>
                                                       Three Months Ended                 Nine Months Ended         August 24, 1981
                                                            April 30,                         April 30,                (Date of
                                                  ----------------------------      ----------------------------     Inception) to
                                                     2005             2004             2005             2004         April 30, 2005
                                                  -----------      -----------      -----------      -----------    ----------------
<S>                                               <C>              <C>              <C>              <C>              <C>
Revenue:
    Sales                                         $        --      $        --      $        --      $        --      $    553,489
    Investment income                                  41,033            3,081          103,915           11,311         1,533,028
    Other income                                        9,836               --            9,836               --            99,939
                                                  -----------      -----------      -----------      -----------      ------------
 Total revenue                                         50,869            3,081          113,751           11,311         2,186,456
                                                  -----------      -----------      -----------      -----------      ------------

Costs and expenses:
    Cost of sales                                          --               --               --               --           336,495
    Research and development                        1,385,753          927,151        3,861,345        2,238,437        48,816,257
    General and administrative                        331,716          329,388        1,199,719          977,576        25,065,928
    Interest:
        Related parties, net                               --               --               --               --         1,147,547
        Others                                          7,961            97,091          51,383          325,492         2,877,626
                                                  -----------      -----------      -----------      -----------      ------------
Total costs and expenses                            1,725,430        1,353,630        5,112,447        3,541,505        78,243,853
                                                  -----------      -----------      -----------      -----------      ------------

Loss before state tax benefit                      (1,674,561)      (1,350,549)      (4,998,696)      (3,530,194)      (76,057,397)

State tax benefit                                          --               --          287,975          221,847         2,302,160
                                                  -----------      -----------      -----------      -----------      ------------

Net loss                                          $(1,674,561)     $(1,350,549)     $(4,710,721)     $(3,308,347)     $(73,755,237)
                                                  ===========      ===========      ===========      ===========      ============

Loss per basic and diluted common share           $     (0.05)     $     (0.05)     $     (0.13)     $     (0.12)
                                                  ===========      ===========      ===========      ===========

Weighted average number of shares outstanding      35,246,456       29,548,812       35,037,344       28,290,878
                                                  ===========      ===========      ===========      ===========
</TABLE>

See accompanying notes to condensed financial statements.

                                     - 3 -
<PAGE>


                              ALFACELL CORPORATION
                          (A Development Stage Company)

                       CONDENSED STATEMENTS OF CASH FLOWS

                   Nine Months Ended April 30, 2005 and 2004,
                       and the Period from August 24, 1981
                      (Date of Inception) to April 30, 2005

                                   (Unaudited)

<TABLE>
<CAPTION>
                                                                             Nine Months Ended         August 24, 1981
                                                                                  April 30,                 (Date of
                                                                        ----------------------------     Inception) to
                                                                           2005             2004        April 30, 2005
                                                                        -----------      -----------   ----------------
<S>                                                                     <C>              <C>             <C>
Cash flows from operating activities:
  Net loss                                                              $(4,710,721)     $(3,308,347)    $(73,755,237)
  Adjustments to reconcile net loss to
     net cash used in operating activities:
     Gain on sale of marketable securities                                       --               --          (25,963)
     Depreciation and amortization                                           22,319            5,440        1,579,086
     Loss on disposal of property and equipment                                  --               --           18,926
     Noncash operating expenses                                              13,500          371,137        6,700,224
     Amortization of debt discount                                           34,120          252,356          594,219
     Amortization of deferred compensation                                       --               --       11,442,000
     Amortization of organization costs                                          --               --            4,590
Changes in operating assets and liabilities:
     Increase in other current assets                                      (137,351)        (264,167)        (261,989)
     Increase in loan receivable-related party                               (7,179)          (8,404)         (62,943)
     Increase in interest payable-related party                                  --               --          744,539
     Increase (decrease) in accounts payable                               (111,583)         211,215          936,652
     Increase in accrued payroll and
       expenses, related parties                                                 --               --        2,348,145
     Increase (decrease) in accrued expenses                                427,705         (670,410)       1,707,295
                                                                        -----------      -----------     ------------
     Net cash used in operating activities                               (4,469,190)      (3,411,180)     (48,030,456)
                                                                        -----------      -----------     ------------
Cash flows from investing activities:
     Purchase of marketable equity securities                                    --               --         (290,420)
     Purchase of short term investments                                  (1,993,644)              --       (1,993,644)
     Proceeds from sale of marketable equity securities                          --               --          316,383
     Purchase of property and equipment                                     (43,086)          (7,432)      (1,503,459)
     Patent costs                                                                --               --          (97,841)
                                                                        -----------      -----------     ------------

Net cash used in investing activities                                    (2,036,730)          (7,432)      (3,568,981)
                                                                        -----------      -----------     ------------
</TABLE>

                                                                     (continued)

                                     - 4 -
<PAGE>


                              ALFACELL CORPORATION
                          (A Development Stage Company)

                  CONDENSED STATEMENTS OF CASH FLOWS, Continued

                    Nine Months Ended April 30, 2005 and 2004
                       and the Period from August 24, 1981
                      (Date of Inception) to April 30, 2005

                                  (Unaudited)

<TABLE>
<CAPTION>
                                                                             Nine Months Ended         August 24, 1981
                                                                                  April 30,                 (Date of
                                                                        ----------------------------     Inception) to
                                                                           2005             2004        April 30, 2005
                                                                        -----------      -----------   ----------------
<S>                                                                     <C>              <C>             <C>
Cash flows from financing activities:
  Proceeds from short-term borrowings                                   $        --      $        --     $   874,500
  Payment of short-term borrowings                                               --               --        (653,500)
  Increase in loans payable - related party, net                                 --               --       2,628,868
  Proceeds from bank debt and other long-term debt, net of costs                 --               --       3,667,460
  Reduction of bank debt and long-term debt                                  (6,730)          (6,799)     (2,966,567)
  Proceeds from issuance of common stock, net                                    --        1,527,925      40,750,316
  Proceeds from exercise of stock options and warrants, net                 261,715        2,772,422      10,481,126
  Proceeds from issuance of convertible debentures, related party                --               --         297,000
  Proceeds from issuance of convertible debentures, unrelated party              --               --         416,993
                                                                        -----------      -----------     -----------
      Net cash  provided by financing activities                            254,985        4,293,548      55,496,196
                                                                        -----------      -----------     -----------
Net increase (decrease) in cash and cash equivalents                     (6,250,935)         874,936       3,896,759
Cash and cash equivalents at beginning of period                         10,147,694          330,137              --
                                                                        -----------      -----------     -----------
Cash and cash equivalents at end of period                              $ 3,896,759      $ 1,205,073     $ 3,896,759
                                                                        ===========      ===========     ===========
Supplemental disclosure of cash flow information - interest paid        $       305      $    31,737     $ 1,714,018
                                                                        ===========      ===========     ===========
Noncash financing activities:
  Issuance of convertible subordinated debenture for loan payable
    to officer                                                          $        --      $        --     $ 2,725,000
                                                                        ===========      ===========     ===========
  Issuance of common stock upon the conversion of convertible
    subordinated debentures, related party                              $        --      $        --     $ 3,242,000
                                                                        ===========      ===========     ===========
  Conversion of short-term borrowings to common stock                   $        --      $        --     $   226,000
                                                                        ===========      ===========     ===========
  Conversion of accrued interest, payroll and expenses by related
    parties to stock options                                            $        --      $        --     $ 3,194,969
                                                                        ===========      ===========     ===========
  Repurchase of stock options from related party                        $        --      $        --     $  (198,417)
                                                                        ===========      ===========     ===========
  Conversion of accrued interest to stock options                       $        --      $        --     $   142,441
                                                                        ===========      ===========     ===========
  Accounts payable settled in common stock                              $        --      $    42,729     $   506,725
                                                                        ===========      ===========     ===========
  Conversion of notes payable, bank and accrued interest
    to long-term debt                                                   $        --      $        --     $ 1,699,072
                                                                        ===========      ===========     ===========
  Conversion of loans and interest payable, related party and
    accrued payroll and expenses, related parties to long-term
    accrued payroll and other, related party                            $        --      $        --     $ 1,863,514
                                                                        ===========      ===========     ===========
  Issuance of common stock upon the conversion of convertible
    subordinated debentures, other                                      $   224,520      $   514,597     $ 1,344,385
                                                                        ===========      ===========     ===========
  Issuance of warrants with notes payable                               $        --      $        --     $   594,219
                                                                        ===========      ===========     ===========
</TABLE>

See accompanying notes to condensed financial statements.

                                     - 5 -
<PAGE>


                              ALFACELL CORPORATION
                          (A Development Stage Company)

                     NOTES TO CONDENSED FINANCIAL STATEMENTS

                                   (Unaudited)

1.    ORGANIZATION AND BASIS OF PRESENTATION

      In  the  opinion  of  management,  the  accompanying  unaudited  condensed
financial  statements  contain all adjustments  (consisting of normal  recurring
adjustments)  necessary to present fairly the Company's financial position as of
April 30,  2005 and its results of  operations  and cash flows for the three and
nine month  periods ended April 30, 2005 and 2004 and the period from August 24,
1981 (date of  inception) to April 30, 2005.  The results of operations  for the
three and nine months ended April 30, 2005 are not necessarily indicative of the
results to be expected for the full year. The condensed  balance sheet presented
herein has been derived from the audited  financial  statements  included in the
Form 10-K for the fiscal year ended July 31, 2004, filed with the Securities and
Exchange Commission.

      Certain footnote  disclosures  normally  included in financial  statements
prepared in accordance  with  accounting  principles  generally  accepted in the
United  States of America have been  omitted in  accordance  with the  published
rules and regulations of the Securities and Exchange  Commission.  The condensed
financial  statements  in this  report  should be read in  conjunction  with the
financial  statements and notes thereto included in the Form 10-K for the fiscal
year ended July 31, 2004.

      The Company is a  development  stage  company as defined in  Statement  of
Financial Accounting Standards No. 7. The Company is devoting  substantially all
of its present  efforts to developing new drug products.  Its planned  principal
operations have not commenced and, accordingly,  no significant revenue has been
derived therefrom.

      The Company has reported net losses of  approximately  $4,711,000  for the
nine months ended April 30, 2005 and $5,070,000,  $2,411,000, and $2,591,000 for
the fiscal years ended July 31, 2004, 2003 and 2002, respectively. The loss from
date of inception, August 24, 1981 to April 30, 2005 amounts to $73,755,000.

      The Company's long-term continued operations will depend on its ability to
raise additional funds through various potential sources such as equity and debt
financing,  collaborative agreements, strategic alliances, sale of net operating
loss carryforwards,  revenues from the commercial sale of ONCONASE(R), licensing
of its  proprietary  RNase  technology  and its  ability  to  realize  the  full
potential of its technology and its drug candidates via out-licensing agreements
with other  companies.  Such additional funds may not become available as needed
or be available on acceptable terms. Through May 28, 2005, a significant portion
of the Company's  financing has been through the sale of equity  securities  and
convertible  debentures  in  registered  offerings  and private  placements  and
exercise of stock  options and  warrants.  Additionally,  the Company has raised
capital  through debt  financings,  sale of net  operating  loss  carryforwards,
research  products,  interest  income  and  financing  received  from its  Chief
Executive  Officer.   Until  and  unless  the  Company's   operations   generate
significant  revenues,  the Company  expects to continue to fund its  operations
from the sources of capital previously described. There can be no assurance that
the Company will be able to raise the capital needed on acceptable  terms, if at
all. As of April 30, 2005,  management  believes that the Company's cash balance
including short term  investments is sufficient to fund its expanded  operations
at least through April 30, 2006 based on its expected level of  expenditures  in
relation to activities in preparing  ONCONASE(R) for marketing  registrations in
the US and Europe and other  ongoing  operations  of the Company.  However,  the
Company will continue to seek

                                       6
<PAGE>


                              ALFACELL CORPORATION
                          (A Development Stage Company)

               NOTES TO CONDENSED FINANCIAL STATEMENTS, Continued

                                   (Unaudited)

1.    ORGANIZATION AND BASIS OF PRESENTATION, CONTINUED

additional  financing  through  equity  or debt  financings  and the sale of net
operating  loss  carryforwards  but cannot be sure that it will be able to raise
capital on  favorable  terms or at all.  The Company may also obtain  additional
capital  through the exercise of outstanding  options and warrants,  although it
cannot  provide any assurance of such exercises or the amount of capital it will
receive, if any.

      The Company will continue to incur costs in conjunction  with its U.S. and
foreign  registrations  for marketing  approval of  ONCONASE(R).  The Company is
currently in discussions with potential  strategic  alliance partners to further
the development  and marketing of ONCONASE(R) and other related  products in its
pipeline. However, it cannot be sure that any such alliances will materialize.

2.    EARNINGS (LOSS) PER COMMON SHARE

      "Basic"  earnings (loss) per common share equals net income (loss) divided
by weighted  average  common  shares  outstanding  during the period.  "Diluted"
earnings  per common  share  equals net  income  divided by the sum of  weighted
average common shares outstanding during the period, adjusted for the effects of
potentially  dilutive  securities.  The  Company's  basic and  diluted per share
amounts  are the same since the  Company is in a loss  position  and the assumed
exercise of stock options and warrants and conversion of convertible notes would
be  anti-dilutive.  The number of shares  subject  to  outstanding  options  and
warrants that could dilute  earnings per share in future  periods was 15,183,029
and 11,856,030 at April 30, 2005 and 2004, respectively.  These also exclude the
potential  dilution that could occur upon the  conversion of  convertible  notes
into 1,199,890 and 3,319,402  shares of common stock and additional  warrants to
purchase  1,399,890 and  3,860,424  shares of common stock at April 30, 2005 and
2004, respectively.

3.    STOCK-BASED COMPENSATION

      The Company  measures  compensation  expense for its stock-based  employee
compensation  plans using the intrinsic  value method.  As the exercise price of
all options  granted under these plans was equal to the fair market price of the
underlying common stock on the grant date, no stock-based employee  compensation
cost has been recognized in the condensed statements of operations.

      In accordance  with Statement of Financial  Accounting  Standards No. 123,
"Accounting for Stock-Based  Compensation" (SFAS 123) and Statement of Financial
Accounting  Standards  No.  148,  "Accounting  for  Stock-Based  Compensation  -
Transition  and Disclosure - An Amendment of FASB Statement No. 123" (SFAS 148),
the  Company's  pro forma  option  expense is computed  using the  Black-Scholes
option  pricing  model.  To comply with SFAS 148, the Company is presenting  the
following  table to illustrate  the effect on the net loss and loss per share if
it had applied the fair value recognition provisions of SFAS 123, as amended, to
options granted under the stock-based employee  compensation plans. For purposes
of this pro forma  disclosure,  the estimated  value of the options is amortized
ratably to expense over the options' vesting periods.

                                       7
<PAGE>


                              ALFACELL CORPORATION
                          (A Development Stage Company)

               NOTES TO CONDENSED FINANCIAL STATEMENTS, Continued

                                   (Unaudited)

3.    STOCK-BASED COMPENSATION, CONTINUED

<TABLE>
<CAPTION>
                                                 Three Months Ended              Nine Months Ended
                                                     April 30,                       April 30,
                                            ---------------------------     ---------------------------
                                               2005            2004            2005            2004
                                            -----------     -----------     -----------     -----------
<S>                                         <C>             <C>             <C>             <C>
Net loss applicable to common shares
    As reported                             $(1,674,561)    $(1,350,549)    $(4,710,721)    $(3,308,347)
    Less total stock-based employee
      compensation expense determined
      under fair value method for all
      awards, net of related tax effects
                                               (632,419)       (979,883)     (1,856,361)     (1,160,246)
                                            -----------     -----------     -----------     -----------
    Pro forma                               $(2,306,980)    $(2,330,432)    $(6,567,082)    $(4,468,593)
                                            ===========     ===========     ===========     ===========

Basic and diluted loss per common share
    As reported                                  $(0.05)         $(0.05)         $(0.13)         $(0.12)
    Pro forma                                     (0.07)          (0.08)          (0.19)          (0.16)
</TABLE>

      The fair value was estimated using the Black-Scholes options pricing model
based on the following assumptions:

                                                     Nine Months Ended
                                                         April 30,
                                                --------------------------
                                                 2005          2004
                                                ------   -----------------

      Expected dividend yield                     0%            0%
      Risk-free interest rate                    4.25%        2% - 6%
      Expected stock price volatility           99.44%    40.79% - 114.54%
      Expected term until exercise (years)       9.2         5.96 - 10

      As a result of  amendments  to SFAS 123,  the Company  will be required to
expense  the fair value of  employee  stock  options  beginning  with its fiscal
quarter ending October 31, 2005.

4.    LOAN RECEIVABLE, RELATED PARTY

      Amounts due from the Company's CEO totaling $158,994 and $151,815 at April
30, 2005 and July 31, 2004, respectively, are classified as a long-term asset as
the loans have no specified due dates, and the Company does not expect repayment
of these  amounts  within one year.  As of April 30,  2005,  the Company  earned
interest at 8% per annum  (approximately  $7,179 for the nine months then ended)
on the unpaid principal balance.

                                       8
<PAGE>


                              ALFACELL CORPORATION
                          (A Development Stage Company)

               NOTES TO CONDENSED FINANCIAL STATEMENTS, Continued

                                   (Unaudited)

5.    CAPITAL STOCK

      During the quarter  ended  October 31, 2004,  the Company  issued  320,157
shares of  restricted  common stock and five-year  warrants to purchase  420,157
shares of  common  stock  with an  exercise  price of $1.00  per share  upon the
conversion of notes payable and accrued interest in the amount of $112,055 by an
unrelated party.

      During the quarter  ended  October 31,  2004,  the Company  also issued an
aggregate  of 326,472  shares of common  stock upon the exercise of warrants and
stock  options by  unrelated  parties,  employees  and a  director  at per share
exercise prices ranging from $0.29 to $1.50. The Company realized  aggregate net
proceeds of $209,545 from these exercises.

      During the quarter  ended  January 31, 2005,  the Company  issued  224,931
shares of  restricted  common stock and five-year  warrants to purchase  224,931
shares of  common  stock  with an  exercise  price of $1.00  per share  upon the
conversion of notes payable and accrued interest in the amount of $112,465 by an
unrelated party.

      During the quarter  ended  January 31,  2005,  the Company  also issued an
aggregate  of 23,000  shares of common  stock upon the  exercise of warrants and
stock options by an unrelated party and an employee at per share exercise prices
ranging  from $0.26 to $1.25.  The Company  realized  aggregate  net proceeds of
$34,621 from these exercises.

      During the quarter ended  January 31, 2005,  the Company also issued 3,000
shares of restricted common stock as payment for services  rendered.  A non-cash
expense of $13,500 was recorded by the Company for these shares,  based upon the
fair value of the common stock at the date of issuance.

      During the quarter ended April 30, 2005,  the Company issued 10,000 shares
of common stock upon the  exercise of stock  options by an employee at per share
exercise price of $1.91.  The Company realized net proceeds of $17,549 from this
exercise.

6.    SALE OF NET OPERATING LOSS CARRYFORWARDS

      New Jersey has enacted legislation permitting certain corporations located
in New  Jersey to sell  state tax loss  carryforwards  and  state  research  and
development credits, or net operating loss carryforwards, in order to obtain tax
benefits.  For the state fiscal year 2005 (July 1, 2004 to June 30,  2005),  the
Company had  approximately  $1,335,000 of total  available  net  operating  loss
carryforwards  that were saleable;  of which New Jersey permitted the Company to
sell   approximately   $339,000.   In  December  2004,   the  Company   received
approximately  $288,000  from the sale of the  $339,000  of net  operating  loss
carryforwards,  which was  recognized as a tax benefit for the nine months ended
April 30, 2005.

                                       9
<PAGE>


                              ALFACELL CORPORATION
                          (A Development Stage Company)

               NOTES TO CONDENSED FINANCIAL STATEMENTS, Continued

                                   (Unaudited)

6.    SALE OF NET OPERATING LOSS CARRYFORWARDS, CONTINUED

      For the state  fiscal  year  2004  (July 1,  2003 to June 30,  2004),  the
Company had  approximately  $1,378,000 of total  available  net  operating  loss
carryforwards  that were saleable;  of which New Jersey permitted the Company to
sell   approximately   $261,000.   In  December  2003,   the  Company   received
approximately  $222,000  from the sale of the  $261,000  of net  operating  loss
carryforwards,  which was  recognized as a tax benefit for the nine months ended
April 30, 2004.

      If still  available under New Jersey law, the Company will attempt to sell
the remaining $996,000 of its net operating loss  carryforwards  between July 1,
2005 and June 30,  2006.  This  amount,  which is a carryover  of the  Company's
remaining  net operating  loss  carryforwards  from state fiscal year 2005,  may
increase  if  the  Company  incurs   additional  net  losses  and  research  and
development  credits during state fiscal year 2006. The Company cannot estimate,
however,  what percentage of its saleable net operating loss  carryforwards  New
Jersey  will permit it to sell,  how much money will be  received in  connection
with the sale, if the Company will be able to find a buyer for its net operating
loss carryforwards or if such funds will be available in a timely manner.

7.    SUBSEQUENT EVENTS

      In May 2005,  the Company  issued  1,199,890  shares of restricted  common
stock and five-year  warrants to purchase an aggregate total of 1,399,890 shares
of common stock with an exercise price of $1.00 per share upon the conversion of
notes payable in the amount of $239,978 by an unrelated party.

                                       10
<PAGE>


ITEM 2. MANAGEMENT'S  DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
        OF OPERATIONS.

        Information  herein  contains,  in addition to  historical  information,
forward-looking statements that involve risks and uncertainties. All statements,
other than  statements of  historical  fact,  regarding our financial  position,
potential,  business  strategy,  plans and objectives for future  operations are
"forward-looking  statements."  These statements are commonly  identified by the
use of  forward-looking  terms and phrases  such as  "anticipates,"  "believes,"
"estimates,"  "expects,"  "intends," "may," "seeks,"  "should," or "will' or the
negative thereof or other variations  thereon or comparable  terminology,  or by
discussions of strategy. We cannot assure you that the future results covered by
these forward-looking  statements will be achieved. The matters set forth herein
under the caption "Risk Factors" constitute  cautionary  statements  identifying
important factors with respect to these  forward-looking  statements,  including
certain  risks and  uncertainties,  that  could  cause  actual  results  to vary
significantly  from  the  future  results  indicated  in  these  forward-looking
statements.   Other   factors   could  also  cause  actual   results  to  differ
significantly  from  the  future  results  indicated  in  these  forward-looking
statements.

OVERVIEW

        Since our inception,  we have devoted the vast majority of our resources
to the research and development of ONCONASE(R) and related drug  candidates.  We
have focused our resources  towards the  completion of the clinical  program for
unresectable, or inoperable, malignant mesothelioma.

        Since  ONCONASE(R)  has Fast  Track  Designation  for the  treatment  of
malignant  mesothelioma,  we continue to have meetings and discussions  with the
FDA to establish  mutually agreed upon parameters for the New Drug  Application,
or NDA to obtain  marketing  approval  for  ONCONASE(R),  assuming the Phase III
clinical  trial for the  treatment of malignant  mesothelioma  yields  favorable
results.

        We received an Orphan Medicinal Product Designation for ONCONASE(R) from
the European  Agency for the Evaluation of Medicinal  Products,  or the EMEA. We
continue to fulfill the EMEA requirements regarding the Marketing  Authorization
Application, or MAA, registration requirements for ONCONASE(R) for the treatment
of malignant mesothelioma.

        Almost all of our research and development  expenses since our inception
of $48,816,000  have gone toward the development of ONCONASE(R) and related drug
candidates. For the nine months ended April 30, 2005 and fiscal years 2004, 2003
and 2002, our research and  development  expenses were  $3,861,000,  $3,353,000,
$1,700,000  and  $2,033,000,  respectively.   ONCONASE(R)  is  currently  in  an
international, centrally randomized Phase III trial. The first part of the trial
has been completed and the second confirmatory part of the trial is ongoing. The
primary endpoint of the trial is survival,  and as such, a sufficient  number of
deaths  must occur in order to perform  the  required  statistical  analyses  to
determine the efficacy of  ONCONASE(R) in patients with  unresectable  malignant
mesothelioma.  If the results of the clinical trials are positive,  we expect to
file for marketing registrations (NDA and MAA) for ONCONASE(R) within six months
of  completion of the  statistical  analyses.  However,  at this time, we cannot
predict with certainty when a sufficient  number of deaths will occur to achieve
statistical  significance.  Hence, the timing of the filing is data driven as to
when we will be able  to  file  for  marketing  registrations  in the US and EU.
Therefore,  we  cannot  predict  with  certainty  what our  total  cost  will be
associated  with obtaining  marketing  approvals,  or when and if such approvals
will be granted, and when actual sales will occur.

        We fund the research and  development of our products from cash receipts
resulting  primarily  from the sale of our  equity  securities  and  convertible
debentures in registered offerings and private placements. Additionally, we have
raised capital through debt financings, the sale of our net operating

                                       11
<PAGE>


loss  carryforwards,  research products,  interest income and financing received
from our Chief Executive  Officer.  Presently,  we believe that our cash balance
including short term  investments is sufficient to fund our expanded  operations
at least through April 30, 2006 based on our expected level of  expenditures  in
relation to activities in preparing ONCONASE(R) for marketing  registrations and
other  ongoing  operations  of the Company.  However,  we will  continue to seek
additional  financing  through equity or debt financings and the sale of our net
operating  loss  carryforwards  but cannot be sure that we will be able to raise
capital on  favorable  terms or at all.  We may also obtain  additional  capital
through the exercise of  outstanding  options and  warrants,  although we cannot
provide  any  assurance  of such  exercises  or the  amount of  capital  we will
receive, if any.

RESULTS OF OPERATIONS

Three and Nine Month Periods Ended April 30, 2005 and 2004
----------------------------------------------------------

        REVENUES. We are a development stage company as defined in the Statement
of Financial  Accounting  Standards No. 7. We are devoting  substantially all of
our present  efforts to  establishing  and  developing  new drug  products.  Our
planned principal operations of marketing and/or licensing of new drugs have not
commenced and,  accordingly,  we have not derived any  significant  revenue from
these operations. We focus most of our productive and financial resources on the
development  of  ONCONASE(R)  and as such we have not had any sales in the three
and nine month periods ended April 30, 2005 and 2004. Our investment  income for
the three  months  ended April 30,  2005 was $41,000  compared to $3,000 for the
same period last year,  an increase of $38,000.  Investment  income for the nine
months ended April 30, 2005 was $104,000 compared to $11,000 for the same period
last year, an increase of $93,000.  These  increases were due to higher balances
of cash and cash  equivalents  and short term  investments  and higher  interest
rates.

        RESEARCH AND DEVELOPMENT. Research and development expense for the three
months  ended April 30, 2005 was  $1,386,000  compared to $927,000  for the same
period last year,  an increase of $459,000,  or 50%.  Research  and  development
expense for the nine months  ended  April 30,  2005 was  $3,861,000  compared to
$2,238,000  for the same period last year,  an increase of  $1,623,000,  or 73%.
These  increases  were  primarily  due  to  expenses  related  to  required  NDA
activities  which  included  the  completion  of  key  toxicology  requirements,
completion of key  requirements  for the chemistry,  manufacturing  and controls
section and the ONCONASE(R) ongoing stability program of approximately $971,000;
expansion of the confirmatory  Phase IIIb clinical trial in countries outside of
the  European  Union,  including  the  retention  of another  clinical  research
organization  to assure  regulatory  compliance  in the  conduct of the trial in
these  countries  and grant  payments  and data  management  fees related to our
pivotal Phase III clinical  trial for malignant  mesothelioma  of  approximately
$371,000;  increases in patent expenses of approximately $175,000;  pre-clinical
sponsored research and development expenses and other consulting fees related to
new clinical  trials design of  approximately  $173,000;  sponsored  conferences
related  to  mesothelioma   of   approximately   $40,000;   personnel  costs  of
approximately  $28,000;  and  depreciation  expense  and  equipment  repairs and
maintenance  of  approximately  $17,000  offset by a  decrease  in the  non-cash
expense related to stock options issued for consulting services of approximately
$152,000.

        GENERAL AND ADMINISTRATIVE.  General and administrative  expense for the
three months ended April 30, 2005 was $332,000 compared to $329,000 for the same
period last year, an increase of $3,000.  General and administrative expense for
the nine months ended April 30, 2005 was $1,200,000 compared to $978,000 for the
same period last year, an increase of $222,000,  or 23%.  These  increases  were
primarily  due to  increases in personnel  expenses of  approximately  $347,000,
Nasdaq  re-listing and membership fees of  approximately  $77,000,  professional
fees related to board of directors  fees and

                                       12
<PAGE>


Sarbanes Oxley compliance fees of approximately $65,000,  offset by decreases in
non-cash  expense  related  to stock and stock  options  issued  for  consulting
services of approximately $195,000 and legal expenses of approximately $72,000.

        INTEREST. Interest expense for the three months ended April 30, 2005 was
$8,000 compared to $97,000 for the same period last year, a decrease of $89,000,
or 92%.  Interest  expense for the nine months  ended April 30, 2005 was $51,000
compared to $325,000 for the same period last year,  a decrease of $274,000,  or
84%.  These  decreases  were  primarily  due to the maturity and  conversion  of
convertible notes payable.

        INCOME  TAXES.  New Jersey has enacted  legislation  permitting  certain
corporations  located  in New Jersey to sell  state tax loss  carryforwards  and
state research and development credits, or net operating loss carryforwards,  in
order to obtain tax  benefits.  For the state  fiscal year 2005 (July 1, 2004 to
June 30, 2005), we had approximately $1,335,000 of total available net operating
loss carryforwards that were saleable;  of which New Jersey permitted us to sell
approximately  $339,000.  In December 2004, we received  approximately  $288,000
from the sale of the $339,000 of net  operating  loss  carryforwards,  which was
recognized as a tax benefit for the nine months ended April 30, 2005.

        For the state fiscal year 2004 (July 1, 2003 to June 30,  2004),  we had
approximately  $1,378,000 of total  available net operating  loss  carryforwards
that were  saleable;  of which New  Jersey  permitted  us to sell  approximately
$261,000. In December 2003, we received  approximately $222,000 from the sale of
the $261,000 of net operating loss  carryforwards,  which we recognized as a tax
benefit for the nine months ended April 30, 2004.

        If still  available  under New Jersey law,  we will  attempt to sell the
remaining $996,000 of our net operating loss carryforwards  between July 1, 2005
and June 30,  2006.  This  amount,  which is a carryover  of our  remaining  net
operating  loss  carryforwards  from state fiscal year 2005,  may increase if we
incur  additional net losses and research and  development  credits during state
fiscal year 2006. We cannot estimate,  however,  what percentage of our saleable
net operating  loss  carryforwards  New Jersey will permit us to sell,  how much
money we will receive in connection  with the sale, if we will be able to find a
buyer  for  our net  operating  loss  carryforwards  or if  such  funds  will be
available in a timely manner.

        NET LOSS.  We have  incurred  net  losses  during  each  year  since our
inception. The net loss for the three months ended April 30, 2005 was $1,675,000
as  compared  to  $1,351,000  for the same  period  last year,  an  increase  of
$324,000.  The net loss for the nine months ended April 30, 2005 was  $4,711,000
as  compared  to  $3,308,000  for the same  period  last year,  an  increase  of
$1,403,000.  The cumulative loss from the date of inception,  August 24, 1981 to
April 30, 2005,  amounted to  $73,755,000.  Such losses are  attributable to the
fact that we are still in the development  stage and,  accordingly,  we have not
derived  sufficient  revenues from  operations to offset the  development  stage
expenses.

LIQUIDITY AND CAPITAL RESOURCES

        We have financed our operations since inception  through the sale of our
equity securities and convertible debentures in registered offerings and private
placements.  Additionally,  we have raised capital through debt financings,  the
sale of our net operating loss carryforwards, research products, interest income
and financing received from our Chief Executive Officer.  During the nine months
ended April 30,  2005,  we had a net  decrease in cash and cash  equivalents  of
$6,251,000,  which resulted primarily from net cash used in operating activities
of $4,469,000  and net cash used in investing  activities due to the purchase of
short-term  investments  of $1,994,000 and purchase of property and equipment of
$43,000,  offset by net cash  provided by financing  activities of $255,000 from
warrant and stock option

                                       13
<PAGE>


exercises of $262,000,  net of a $7,000  reduction of debt. Total cash resources
as of April 30, 2005 were $3,897,000 compared to $10,148,000 at July 31, 2004.

        Our current liabilities as of April 30, 2005 were $1,658,000 compared to
$1,539,000 at July 31, 2004, an increase of $119,000. The increase was primarily
due to  increases in accrued  expenses of  approximately  $403,000,  offset by a
decrease in accounts payable of approximately  $111,000,  offset by maturity and
conversion of convertible notes payable of approximately $173,000.

        Our long-term  continued  operations will depend on our ability to raise
additional  funds  through  various  potential  sources  such as equity and debt
financing,  collaborative agreements, strategic alliances, sale of net operating
loss carryforwards,  revenues from the commercial sale of ONCONASE(R), licensing
of our proprietary RNase technology and our ability to realize revenues from our
technology  and our drug  candidates  via  out-licensing  agreements  with other
companies.  Such additional funds may not become available as we need them or be
available on acceptable  terms. To date, a significant  portion of our financing
has been through the sale of our equity securities and convertible debentures in
registered  offerings and private  placements  and exercise of stock options and
warrants. Additionally, we have raised capital through debt financings, the sale
of our net operating loss carryforwards,  research products, interest income and
financing  received  from our Chief  Executive  Officer.  Until and  unless  our
operations  generate  significant  revenues,  we  expect  to  continue  to  fund
operations  from the sources of capital  previously  described.  There can be no
assurance that we will be able to raise the capital we need on acceptable terms,
if at all.  Presently,  we believe  that our cash balance  including  short term
investments is sufficient to fund our expanded operations at least through April
30, 2006 based on our expected level of  expenditures  in relation to activities
in  preparing   ONCONASE(R)  for  marketing   registrations  and  other  ongoing
operations  of the  Company.  However,  we  will  continue  to  seek  additional
financing  through  equity or debt  financings and the sale of our net operating
loss  carryforwards  but cannot be sure that we will be able to raise capital on
favorable  terms or at all. We may also obtain  additional  capital  through the
exercise of  outstanding  options and warrants,  although we cannot  provide any
assurance of such exercises or the amount of capital we will receive, if any.

        We will continue to incur costs in conjunction with our U.S. and foreign
registrations  for  marketing  approval  of  ONCONASE(R).  We are  currently  in
discussions  with  potential   strategic   alliance   partners  to  further  the
development  and  marketing of  ONCONASE(R)  and other  related  products in our
pipeline. However, we cannot be sure that any such alliances will materialize.

        The market price of our common  stock is volatile,  and the price of the
stock could be  dramatically  affected one way or another  depending on numerous
factors.  The market price of our common stock could also be materially affected
by the marketing approval or lack of approval of ONCONASE(R).

OFF-BALANCE SHEET ARRANGEMENTS

        As part of our ongoing  business,  we do not participate in transactions
that  generate   relationships   with   unconsolidated   entities  or  financial
partnerships,  such as  entities  often  referred  to as  structured  finance or
variable  interest  entities or VIEs,  which would have been established for the
purpose of facilitating  off-balance sheet  arrangements or other  contractually
narrow or limited  purposes.  As of April 30,  2005,  we are not involved in any
unconsolidated VIE transactions.

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

        Critical  accounting  policies  are those  that  involve  subjective  or
complex  judgments,  often  as a  result  of the  need  to make  estimates.  The
following  areas all require the use of judgments  and  estimates:  research and
development expenses,  accounting for stock-based  compensation,  accounting for
warrants

                                       14
<PAGE>


issued with  convertible  debt and deferred  income taxes.  Estimates in each of
these areas are based on historical  experience and various  assumptions that we
believe are  appropriate.  Actual results may differ from these  estimates.  Our
accounting  practices are discussed in more detail in  "Management's  Discussion
and Analysis of Financial  Condition  and Results of  Operations"  and Note 1 of
"Notes to Consolidated  Financial  Statements" in our Annual Report on Form 10-K
for the year ended July 31, 2004.

RECENTLY ISSUED ACCOUNTING STANDARDS

        In  December  2004,  the FASB  issued SFAS No.  123(R)  (revised  2004),
"Share-Based Payment", which amends SFAS Statement No. 123 and will be effective
beginning  the fiscal  quarter  ending  October 31, 2005.  The new standard will
require us to expense employee stock options and other share-based payments over
the vesting  period.  The new standard may be adopted in one of three ways - the
modified prospective  transition method, a variation of the modified prospective
transition  method  or the  modified  retrospective  transition  method.  We are
currently  evaluating  how we will adopt the standard and  evaluating the effect
that the adoption of SFAS 123(R) will have on our financial position and results
of operations.

CONTRACTUAL OBLIGATIONS AND COMMERCIAL COMMITMENTS

        Our  outstanding   contractual   obligations  relate  to  our  equipment
operating  lease.  The following table presents our contractual  obligations and
commercial commitments as of April 30, 2005:

                                                        Payments Due
                                                       by Fiscal Year
                                                  --------------------------
                                                                   2007 and
                                          Total    2005    2006   Thereafter
                                         -------  ------  ------  ----------

    Operating lease                      $45,855  $3,057  $9,171    $33,627
                                         -------  ------  ------    -------
    Total contractual cash obligations   $45,855  $3,057  $9,171    $33,627
                                         =======  ======  ======    =======


                                  RISK FACTORS

        AN  INVESTMENT  IN OUR COMMON STOCK IS  SPECULATIVE  AND INVOLVES A HIGH
DEGREE OF RISK.  YOU  SHOULD  CAREFULLY  CONSIDER  THE  RISKS AND  UNCERTAINTIES
DESCRIBED  BELOW AND THE OTHER  INFORMATION  IN THIS FORM 10-Q AND OUR OTHER SEC
FILINGS BEFORE  DECIDING  WHETHER TO PURCHASE SHARES OF OUR COMMON STOCK. IF ANY
OF THE FOLLOWING RISKS ACTUALLY OCCUR, OUR BUSINESS AND OPERATING  RESULTS COULD
BE HARMED.  THIS COULD CAUSE THE TRADING  PRICE OF OUR COMMON  STOCK TO DECLINE,
AND YOU MAY LOSE ALL OR PART OF YOUR INVESTMENT.

WE HAVE  INCURRED  LOSSES  SINCE  INCEPTION  AND  ANTICIPATE  THAT WE WILL INCUR
CONTINUED LOSSES FOR THE FORESEEABLE  FUTURE. WE DO NOT HAVE A CURRENT SOURCE OF
PRODUCT REVENUE AND MAY NEVER BE PROFITABLE.

        We are a  development  stage  company and since  inception our source of
working  capital has been public and private  sales of our stock.  We incurred a
net loss of  approximately  $4,711,000  for the nine months ended April 30, 2005
and our  cumulative  loss from the date of inception  amounted to  approximately
$73,755,000.  We have  continued to incur  losses since July 2004.  We may never
achieve revenue sufficient for us to attain profitability.

        We  incurred  net losses of  approximately  $5,070,000,  $2,411,000  and
$2,591,000   for  the  fiscal  years  ended  July  31,  2004,   2003  and  2002,
respectively.

                                       15
<PAGE>


        Our  profitability  will  depend  on  our  ability  to  develop,  obtain
regulatory approvals for, and effectively market ONCONASE(R) as well as entering
into strategic  alliances for the  development of new drug  candidates  from the
out-licensing of our proprietary RNase technology.  The commercialization of our
pharmaceutical  products  involves  a  number  of  significant  challenges.   In
particular our ability to  commercialize  ONCONASE(R)  depends on the success of
our clinical development programs, our efforts to obtain regulatory approval and
our sales and  marketing  efforts or those of our  marketing  partners,  if any,
directed at physicians,  patients and  third-party  payors.  A number of factors
could affect these efforts including:

        o   Our ability to demonstrate clinically that our products have utility
            and are safe;

        o   Delays or refusals by regulatory  authorities in granting  marketing
            approvals;

        o   Our limited financial resources relative to our competitors;

        o   Our ability to obtain an appropriate marketing partner;

        o   The  availability  and level of  reimbursement  for our  products by
            third party payors;

        o   Incidents of adverse reactions to our products;

        o   Side  effects or misuse of our products  and  unfavorable  publicity
            that could result; and

        o   The occurrence of manufacturing or distribution disruptions.

        We will  seek to  generate  revenue  through  licensing,  marketing  and
development  arrangements  prior  to  receiving  revenue  from  the  sale of our
products.   To  date  we  have  not   consummated  any  licensing  or  marketing
arrangements  and we  may  not be  able  to  successfully  consummate  any  such
arrangements. We have entered into several development arrangements,  which have
resulted  in limited  revenues  for us.  However,  we cannot  ensure  that these
arrangements or future arrangements,  if any, will result in significant amounts
of revenue for us. We, therefore, are unable to predict the extent of any future
losses or the time required to achieve profitability, if at all.

WE NEED ADDITIONAL FINANCING TO CONTINUE OPERATIONS,  WHICH MAY NOT BE AVAILABLE
ON ACCEPTABLE TERMS, IF IT IS AVAILABLE AT ALL.

        We need additional financing in order to continue operations,  including
completion of our current clinical trials and filing marketing registrations for
ONCONASE(R)  in the United  States with the FDA and in Europe with the EMEA.  If
the results from our current  clinical trial do not demonstrate the efficacy and
safety  of  ONCONASE(R)  for  malignant  mesothelioma,   our  ability  to  raise
additional capital will be adversely affected.  Even if regulatory  applications
for marketing approvals are filed, we will need additional financing to continue
operations.  Presently,  we believe that our cash balance  including  short term
investments is sufficient to fund our expanded operations at least through April
30, 2006,  based on our expected  level of  expenditures.  However,  taking into
consideration  all of the  uncertainties  related  to drug  development  and our
industry,  we will continue to seek additional  financing through equity or debt
financings  and the sale of our net operating loss  carryforwards  but cannot be
sure that we will be able to raise capital on favorable  terms or at all. We may
also obtain additional  capital through the exercise of outstanding  options and
warrants,  although we cannot provide  assurance of such exercises or the amount
of capital we will receive, if any.

WE MAY BE UNABLE TO SELL CERTAIN  STATE TAX BENEFITS IN THE FUTURE AND IF WE ARE
UNABLE TO DO SO, IT WOULD ELIMINATE A SOURCE OF FINANCING THAT WE HAVE RELIED ON
IN THE PAST.

        New Jersey  has  enacted  legislation  permitting  certain  corporations
located in New Jersey to sell state tax loss  carryforwards  and state  research
and development credits, or net operating loss carryforwards, in order to obtain
tax benefits.  The aggregate amount of net operating loss carryforwards

                                       16
<PAGE>


that New Jersey  allows  corporations  to sell each state  fiscal year (July 1st
through  June  30th) is  determined  annually  and if New  Jersey  reduces  such
aggregate  amount in any fiscal year we may be unable to sell some or all of our
available net operating loss  carryforwards as we have in the past. In addition,
there is a limited  market  for  these  types of sales and we may not be able to
find someone to purchase our net operating loss  carryforwards  for a reasonable
price.  Our historical  results of operations  have been improved by our sale of
net operating loss carryforwards and if we continue to generate a limited amount
of  revenue  and are  unable  in the  future  to sell  our  net  operating  loss
carryforwards, our results of operations will be negatively impacted.

        For the state fiscal year 2005 (July 1, 2004 to June 30,  2005),  we had
approximately  $1,335,000 total available net operating loss  carryforwards that
were saleable, of which New Jersey permitted us to sell approximately  $339,000.
In  December  2004,  we  received  approximately  $288,000  from the sale of the
$339,000 of net  operating  loss  carryforwards,  which we  recognized  as a tax
benefit for the nine months ended April 30, 2005. For the state fiscal year 2004
(July 1,  2003 to June  30,  2004),  we had  approximately  $1,378,000  of total
available net operating  loss  carryforwards  that were  saleable,  of which New
Jersey  permitted  us to sell  approximately  $261,000.  In  December  2003,  we
received  approximately  $222,000 from the sale of the $261,000 of net operating
loss  carryforwards,  which we  recognized  as a tax benefit for the nine months
ended April 30, 2004.

        If still  available  under New Jersey law,  we will  attempt to sell the
remaining $996,000 of our net operating loss carryforwards, between July 1, 2005
and June 30,  2006.  This  amount,  which is a carryover  of our  remaining  net
operating  loss  carryforwards  from state fiscal year 2005,  may increase if we
incur  additional net losses and research and  development  credits during state
fiscal year 2006. We cannot estimate,  however,  what percentage of our saleable
net operating  loss  carryforwards  New Jersey will permit us to sell,  how much
money we will receive in connection  with the sale, if we will be able to find a
buyer  for  our net  operating  loss  carryforwards  or if  such  funds  will be
available in a timely manner.

WE  CANNOT  PREDICT  HOW LONG IT WILL  TAKE US NOR HOW  MUCH IT WILL  COST US TO
COMPLETE OUR PHASE III TRIAL BECAUSE IT IS A SURVIVAL  STUDY AND WE ARE STILL IN
PATIENT ENROLLMENT IN PART TWO OF THIS PHASE III TRIAL.

        We currently have ongoing a two-part Phase III trial of ONCONASE(R) as a
treatment for malignant  mesothelioma.  The first part of the clinical trial has
been completed and the second,  confirmatory part is still ongoing.  The primary
endpoint of the Phase III clinical trial is survival, which tracks the length of
time  patients  enrolled  in  the  study  live.  According  to the  protocol,  a
sufficient  number of patient deaths must occur in order to perform the required
statistical  analyses to determine the efficacy of  ONCONASE(R) in patients with
unresectable  (inoperable)  malignant  mesothelioma.  Since it is  impossible to
predict with certainty  when these  terminal  events in the Phase III trial will
occur, we do not have the capability of reasonably determining when a sufficient
number  of deaths  will  occur,  nor when we will be able to file for  marketing
registrations with the FDA and EMEA.

        In addition,  clinical  trials are very costly and time  consuming.  The
length of time required to complete a clinical trial depends on several  factors
including the size of the patient population,  the ability of patients to get to
the site of the clinical study, and the criteria for determining  which patients
are  eligible  to join the study.  Delays in  patient  enrollment,  could  delay
achieving a sufficient number of deaths required for statistical analyses, which
therefore  may delay the marketing  registrations.  Although we believe we could
modify some of our  expenditures  to reduce our cash  outlays in relation to our
clinical trials and other NDA related expenditures,  we cannot quantify which or
the amount such expenditures might be modified. Hence, a delay in the commercial
sale of  ONCONASE(R)  would  increase  the time  frame  of our cash  expenditure
outflows and may require us to seek additional financing. Such capital financing
may not be available on favorable terms or at all.

                                       17
<PAGE>


        The FDA and comparable  regulatory  agencies in foreign countries impose
substantial   pre-market   approval   requirements   on  the   introduction   of
pharmaceutical   products.  These  requirements  involve  lengthy  and  detailed
pre-clinical   and  clinical   testing  and  other  costly  and  time  consuming
procedures.  Satisfaction  of these  requirements  typically takes several years
depending on the type,  complexity  and novelty of the product.  We cannot apply
for FDA or EMEA approval to market ONCONASE(R) until the clinical trials and all
other registration requirements have been met.

IF WE FAIL TO OBTAIN THE NECESSARY REGULATORY APPROVALS,  WE WILL NOT BE ALLOWED
TO COMMERCIALIZE OUR DRUGS AND WILL NOT GENERATE PRODUCT REVENUE.

        The FDA and comparable  regulatory  agencies in foreign countries impose
substantial   pre-market   approval   requirements   on  the   introduction   of
pharmaceutical   products.  These  requirements  involve  lengthy  and  detailed
pre-clinical   and  clinical   testing  and  other  costly  and  time  consuming
procedures.  Satisfaction  of these  requirements  typically takes several years
depending on the level of complexity  and novelty of the product.  Drugs in late
stages of clinical  development may fail to show the desired safety and efficacy
results  despite having  progressed  through  initial  clinical  testing.  While
limited  trials with our product have produced  certain  favorable  results,  we
cannot be certain that we will successfully  complete Phase I, Phase II or Phase
III  testing  of any  compound  within  any  specific  time  period,  if at all.
Furthermore,  the FDA or the company may suspend  clinical trials at any time on
various  grounds,  including a finding  that the  subjects or patients are being
exposed to an unacceptable health risk. In addition,  we cannot apply for FDA or
EMEA approval to market  ONCONASE(R) until pre-clinical and clinical trials have
been completed. Several factors could prevent the successful completion or cause
significant delays of these trials including an inability to enroll the required
number of patients or failure to  demonstrate  the product is safe and effective
in  humans.  Also if safety  concerns  develop,  the FDA and EMEA could stop our
trials before completion.

        In December 2002, we received Fast Track  Designation  from the Food and
Drug  Administration,  or the FDA for ONCONASE(R) for the treatment of malignant
mesothelioma.  In  February  2001,  we  received  an  Orphan  Medicinal  Product
Designation  for  ONCONASE(R)  from the European  Agency for the  Evaluation  of
Medicinal Products, or the EMEA.

        All statutes and  regulations  governing the conduct of clinical  trials
are subject to change by various regulatory agencies,  including the FDA, in the
future,  which could affect the cost and duration of our  clinical  trials.  Any
unanticipated costs or delays in our clinical studies would delay our ability to
generate product revenues and to raise additional  capital and could cause us to
be unable to fund the completion of the studies.

        We may not  market or sell any  product  for which we have not  obtained
regulatory  approval.  We  cannot  assure  you that the FDA or other  regulatory
agencies will ever approve the use of our products  that are under  development.
Even if we receive regulatory approval, such approval may involve limitations on
the  indicated  uses for which we may market our products.  Further,  even after
approval,  discovery of previously  unknown  problems could result in additional
restrictions, including withdrawal of our products from the market.

        If we fail to  obtain  the  necessary  regulatory  approvals,  we cannot
market or sell our products in the United States,  or in other countries and our
long-term  viability  would  be  threatened.  If we fail to  achieve  regulatory
approval or foreign marketing  authorizations for ONCONASE(R) we will not have a
saleable product or product revenues for quite some time, if at all, and may not
be able to continue operations.

                                       18
<PAGE>


WE ARE AND WILL BE DEPENDENT UPON THIRD PARTIES FOR  MANUFACTURING OUR PRODUCTS.
IF THESE  THIRD  PARTIES  DO NOT DEVOTE  SUFFICIENT  TIME AND  RESOURCES  TO OUR
PRODUCTS OUR REVENUES AND PROFITS MAY BE ADVERSELY AFFECTED.

        We do not have the required manufacturing  facilities to manufacture our
products.  We  presently  rely  on  third  parties  to  perform  certain  of the
manufacturing  processes for the production of  ONCONASE(R)  for use in clinical
trials.   Currently,   we  contract  with   Scientific   Protein  Labs  for  the
manufacturing  of ranpirnase  (protein drug substance) from the oocytes,  or the
unfertilized  eggs,  of the RANA PIPIENS  frog,  which is found in the Northwest
United  States and is commonly  called the leopard  frog.  We contract  with Ben
Venue  Corporation for the manufacturing of ONCONASE(R) and with Cardinal Health
for the labeling, storage and shipping of ONCONASE(R) for clinical trial use. We
utilize the services of these third party  manufacturers  solely on an as needed
basis with terms and prices customary for our industry.

        Our use of  manufacturers  for  ranpirnase  and  ONCONASE(R)  have  been
approved  by  the  FDA.  We  have  identified  substantial  alternative  service
providers  for the  manufacturing  services for which we  contract.  In order to
replace an existing  service provider we must amend our IND to notify the FDA of
the new  manufacturer.  Although the FDA  generally  will not suspend or delay a
clinical  trial as a result of replacing an existing  manufacturer,  the FDA has
the  authority  to suspend or delay a clinical  trial if,  among other  grounds,
human subjects are or would be exposed to an unreasonable  and significant  risk
of illness or injury as a result of the replacement manufacturer.

        We intend to rely on third parties to  manufacture  our products if they
are  approved  for  sale  by  the  appropriate   regulatory   agencies  and  are
commercialized. Third party manufacturers may not be able to meet our needs with
respect to the timing, quantity or quality of our products or to supply products
on acceptable terms.

BECAUSE WE DO NOT HAVE MARKETING, SALES OR DISTRIBUTION CAPABILITIES,  WE EXPECT
TO CONTRACT  WITH THIRD  PARTIES FOR THESE  FUNCTIONS  AND WE WILL  THEREFORE BE
DEPENDENT UPON SUCH THIRD PARTIES TO MARKET, SELL AND DISTRIBUTE OUR PRODUCTS IN
ORDER FOR US TO GENERATE REVENUES.

        We currently have no sales, marketing or distribution  capabilities.  In
order to commercialize any product candidates for which we receive FDA approval,
we expect to rely on established third party strategic partners to perform these
functions.  For example,  if we are successful in our Phase III clinical  trials
with ONCONASE(R),  and are granted marketing approval for the  commercialization
of  ONCONASE(R),  we will be unable to introduce  the product to market  without
establishing a marketing  collaboration with a pharmaceutical company with those
resources.  If we establish  relationships with one or more biopharmaceutical or
other marketing  companies with existing  distribution  systems and direct sales
forces to market any or all of our product candidates, we cannot assure you that
we will be able to enter into or maintain  agreements  with these  companies  on
acceptable terms, if at all. Further,  it is likely that we will have limited or
no control  over the manner in which  product  candidates  are  marketed  or the
resources devoted to such markets.

        In  addition,  we  expect  to  begin to incur  significant  expenses  in
determining  our  commercialization  strategy with respect to one or more of our
product  candidates.  The determination of our  commercialization  strategy with
respect to a product candidate will depend on a number of factors, including:

                                       19
<PAGE>


        o   the  extent to which we are  successful  in  securing  collaborative
            partners  to  offset  some or all of the  funding  obligations  with
            respect to product candidates;

        o   the extent to which our agreement with our collaborators  permits us
            to  exercise  marketing  or  promotion  rights  with  respect to the
            product candidate;

        o   how our product  candidates  compare to  competitive  products  with
            respect to  labeling,  pricing,  therapeutic  effect,  and method of
            delivery; and

        o   whether  we are  able  to  establish  agreements  with  third  party
            collaborators,  including large biopharmaceutical or other marketing
            companies,  with respect to any of our product  candidates  on terms
            that are acceptable

        A  number  of these  factors  are  outside  of our  control  and will be
difficult to determine.

OUR PRODUCT CANDIDATES MAY NOT BE ACCEPTED BY THE MARKET.

        Even if  approved  by the  FDA and  other  regulatory  authorities,  our
product candidates may not achieve market  acceptance,  which means we would not
receive significant  revenues from these products.  Approval by the FDA does not
necessarily  mean that the medical  community  will be convinced of the relative
safety,  efficacy  and  cost-effectiveness  of our products as compared to other
products.  In addition,  third party reimbursers such as insurance companies and
HMOs may be reluctant to reimburse expenses relating to our products.

WE DEPEND UPON KUSLIMA SHOGEN AND OUR OTHER KEY PERSONNEL AND MAY NOT BE ABLE TO
RETAIN THESE EMPLOYEES OR RECRUIT QUALIFIED REPLACEMENT OR ADDITIONAL PERSONNEL,
WHICH WOULD HAVE A MATERIAL ADVERSE AFFECT ON OUR BUSINESS.

        We are highly  dependent upon our founder,  Chairman and Chief Executive
Officer, Kuslima Shogen. Kuslima Shogen's talents, efforts, personality,  vision
and  leadership  have been,  and continue to be,  critical to our  success.  The
diminution or loss of the services of Kuslima Shogen, and any negative market or
industry  perception arising from that diminution or loss, would have a material
adverse  effect on our  business.  While our other  employees  have  substantial
experience  and have made  significant  contributions  to our business,  Kuslima
Shogen is our  senior  executive  and also our  primary  supporter  because  she
represents the Company's primary means of accessing the capital markets.

        Because  of the  specialized  scientific  nature  of our  business,  our
continued  success  also is  dependent  upon our  ability to attract  and retain
qualified management and scientific personnel.  There is intense competition for
qualified  personnel  in the  pharmaceutical  field.  As our  company  grows our
inability  to  attract  qualified  management  and  scientific  personnel  could
materially  adversely  affect  our  research  and  development   programs,   the
commercialization of our products and the potential revenue from product sales.

        We do not have  employment  contracts  with Kuslima Shogen or any of our
other management and scientific personnel.

OUR PROPRIETARY TECHNOLOGY AND PATENTS MAY OFFER ONLY LIMITED PROTECTION AGAINST
INFRINGEMENT AND THE DEVELOPMENT BY OUR COMPETITORS OF COMPETITIVE PRODUCTS.

        We own two patents  jointly  with the United  States  government.  These
patents  expire in 2016. We also own ten United States  patents with  expiration
dates ranging from 2006 to 2019,  four European  patents with  expiration  dates
ranging from 2009 to 2016, one Japanese patent that expires in 2010, and another
Japanese patent that expires in 2013. We also own patent  applications  that are
pending in the United States, Europe and Japan. The scope of protection afforded
by patents for biotechnological

                                       20
<PAGE>


inventions is uncertain,  and such  uncertainty  applies to our patents as well.
Therefore,  our  patents  may not give us  competitive  advantages  or afford us
adequate   protection   from  competing   products.   Furthermore,   others  may
independently develop products that are similar to our products,  and may design
around the claims of our patents.  Patent  litigation and intellectual  property
litigation  are expensive  and our  resources are limited.  If we were to become
involved in litigation, we might not have the funds or other resources necessary
to conduct the litigation effectively. This might prevent us from protecting our
patents,  from defending  against claims of  infringement,  or both. To date, we
have not received any threats of litigation regarding patent issues.

DEVELOPMENTS BY COMPETITORS MAY RENDER OUR PRODUCTS OBSOLETE OR NON-COMPETITIVE.

        In February 2004, the Food and Drug  Administration  granted Eli Lilly &
Company  approval to sell its  Alimta(R)  medication  as an orphan drug to treat
patients with pleural mesothelioma.  Alimta is a multi-targeted  antifolate that
is  based  upon  a  different  mechanism  of  action  than  ONCONASE(R).  To our
knowledge,  no other company is developing a product with the same  mechanism of
action as  ONCONASE(R).  However,  there may be other  companies,  universities,
research  teams or  scientists  who are  developing  products  to treat the same
medical conditions our products are intended to treat. Eli Lilly is, and some of
these other  companies,  universities,  research teams or scientists may be more
experienced and have greater clinical, marketing and regulatory capabilities and
managerial  and financial  resources than we do. This may enable them to develop
products to treat the same medical conditions our products are intended to treat
before we are able to complete the development of our competing product.

        Our  business is very  competitive  and  involves  rapid  changes in the
technologies  involved  in  developing  new drugs.  If others  experience  rapid
technological  development,  our products may become obsolete before we are able
to recover expenses  incurred in developing our products.  We will probably face
new competitors as new technologies  develop. Our success depends on our ability
to remain  competitive in the  development of new drugs or we may not be able to
compete successfully.

WE MAY BE SUED FOR PRODUCT LIABILITY.

        Our business exposes us to potential  product  liability that may have a
negative  effect on our financial  performance and our business  generally.  The
administration  of drugs to humans,  whether in clinical trials or commercially,
exposes us to  potential  product  and  professional  liability  risks which are
inherent in the testing, production, marketing and sale of new drugs for humans.
Product  liability  claims  can be  expensive  to defend and may result in large
judgments or settlements  against us, which could have a negative  effect on our
financial  performance and materially adversely affect our business. We maintain
product  liability  insurance to protect our products and product  candidates in
amounts customary for companies in businesses that are similarly  situated,  but
our  insurance  coverage may not be  sufficient  to cover  claims.  Furthermore,
liability insurance coverage is becoming increasingly expensive and we cannot be
certain  that we will  always be able to  maintain  or  increase  our  insurance
coverage at an  affordable  price or in  sufficient  amounts to protect  against
potential losses. A product  liability claim,  product recall or other claim, as
well as any  claim for  uninsured  liabilities  or claim in  excess  of  insured
liabilities, may significantly harm our business and results of operations. Even
if a product  liability claim is not successful,  adverse publicity and time and
expense of defending such a claim may significantly interfere with our business.

                                       21
<PAGE>


IF WE ARE UNABLE TO OBTAIN FAVORABLE  REIMBURSEMENT FOR OUR PRODUCT  CANDIDATES,
THEIR COMMERCIAL SUCCESS MAY BE SEVERELY HINDERED.

        Our ability to sell our future  products may depend in large part on the
extent to which  reimbursement  for the costs of our products is available  from
government  entities,  private health insurers,  managed care  organizations and
others.  Third-party payors are increasingly  attempting to contain their costs.
We cannot  predict  actions  third-party  payors may take,  or whether they will
limit the  coverage  and level of  reimbursement  for our  products or refuse to
provide any coverage at all.  Reduced or partial  reimbursement  coverage  could
make our  products  less  attractive  to  patients,  suppliers  and  prescribing
physicians and may not be adequate for us to maintain price levels sufficient to
realize an  appropriate  return on our  investment in our product  candidates or
compete on price.

        In some cases,  insurers and other healthcare payment  organizations try
to encourage the use of less expensive generic brands and  over-the-counter,  or
OTC,  products through their  prescription  benefits  coverage and reimbursement
policies.  These  organizations may make the generic alternative more attractive
to the patient by providing  different  amounts of reimbursement so that the net
cost of the  generic  product  to the  patient  is less  than  the net cost of a
prescription  brand product.  Aggressive pricing policies by our generic product
competitors  and the  prescription  benefits  policies of insurers  could have a
negative effect on our product revenues and profitability.

        Many managed care organizations  negotiate the price of medical services
and products and develop  formularies  for that purpose.  Exclusion of a product
from a formulary  can lead to its  sharply  reduced  usage in the  managed  care
organization  patient  population.  If our products  are not included  within an
adequate  number  of  formularies  or  adequate  reimbursement  levels  are  not
provided, or if those policies  increasingly favor generic or OTC products,  our
market  share and  gross  margins  could be  negatively  affected,  as could our
overall business and financial condition.

        The competition  among  pharmaceutical  companies to have their products
approved for  reimbursement  may also result in downward pricing pressure in the
industry  or in the  markets  where our  products  will  compete.  We may not be
successful in any efforts we take to mitigate the effect of a decline in average
selling prices for our products. Any decline in our average selling prices would
also reduce our gross margins.

        In addition,  managed care  initiatives  to control  costs may influence
primary  care  physicians  to refer  fewer  patients  to  oncologists  and other
specialists.  Reductions in these referrals could have a material adverse effect
on the size of our potential  market and increase costs to  effectively  promote
our products.

        We are subject to new legislation, regulatory proposals and managed care
initiatives  that may increase our costs of compliance and adversely  affect our
ability to market our products, obtain collaborators and raise capital.

        There have been a number of legislative  and regulatory  proposals aimed
at  changing  the  healthcare  system  and  pharmaceutical  industry,  including
reductions  in the cost of  prescription  products  and changes in the levels at
which  consumers  and  healthcare  providers  are  reimbursed  for  purchases of
pharmaceutical  products.  For  example,  the  Prescription  Drug  and  Medicare
Improvement  Act of 2003 which was  recently  enacted,  provides a new  Medicare
prescription drug benefit beginning in 2006 and mandates other reforms. Although
we cannot predict the full effects on our business of the implementation of this
new legislation,  it is possible that the new benefit,  which will be managed by
private  health  insurers,  pharmacy  benefit  managers  and other  managed care
organizations,  will result in

                                       22
<PAGE>


decreased  reimbursement for prescription  drugs,  which may further  exacerbate
industry-wide pressure to reduce the prices charged for prescription drugs. This
could harm our ability to market our products and generate revenues.  It is also
possible that other  proposals will be adopted.  As a result of the new Medicare
prescription drug benefit or any other proposals, we may determine to change our
current manner of operation,  provide additional benefits or change our contract
arrangements,  any of which  could  harm our  ability to  operate  our  business
efficiently, obtain collaborators and raise capital.

WE HAVE ONLY RECENTLY BEEN RELISTED ON THE NASDAQ  SMALLCAP MARKET AND OUR STOCK
IS THINLY  TRADED  AND YOU MAY NOT BE ABLE TO SELL OUR STOCK WHEN YOU WANT TO DO
SO.

        From April 1999,  when we were delisted from Nasdaq,  until September 9,
2004,  when we  were  relisted  on the  Nasdaq  SmallCap  Market,  there  was no
established  trading  market for our common stock.  During that time, our common
stock was quoted on the OTC Bulletin  Board and was thinly  traded.  There is no
assurance  that we will be able to comply with all of the  listing  requirements
necessary to remain relisted on the Nasdaq  SmallCap  Market.  In addition,  our
stock  remains  thinly  traded  and you may be unable to sell our  common  stock
during times when the trading market is limited.

THE PRICE OF OUR COMMON STOCK HAS BEEN, AND MAY CONTINUE TO BE, VOLATILE.

        The market price of our common  stock,  like that of the  securities  of
many other development stage biotechnology companies, has fluctuated over a wide
range and it is likely that the price of our common stock will  fluctuate in the
future.  Over the past three  years,  the sale price for our  common  stock,  as
reported by Nasdaq and the OTC Bulletin Board has fluctuated from a low of $0.18
to a high of $10.07. The market price of our common stock could be impacted by a
variety of factors, including:

        o   announcements  of   technological   innovations  or  new  commercial
            products by us or our competitors,

        o   disclosure  of the  results of  pre-clinical  testing  and  clinical
            trials by us or our competitors,

        o   disclosure of the results of regulatory proceedings,

        o   changes in government regulation,

        o   developments  in the patents or other  proprietary  rights  owned or
            licensed by us or our competitors,

        o   public  concern as to the safety and efficacy of products  developed
            by us or others,

        o   litigation, and

        o   general market conditions in our industry.

        In addition,  the stock market continues to experience extreme price and
volume  fluctuations.  These  fluctuations  have especially  affected the market
price  of many  biotechnology  companies.  Such  fluctuations  have  often  been
unrelated to the operating  performance of these companies.  Nonetheless,  these
broad market  fluctuations may negatively  affect the market price of our common
stock.

EVENTS  WITH  RESPECT TO OUR SHARE  CAPITAL  COULD CAUSE THE PRICE OF OUR COMMON
STOCK TO DECLINE.

        Sales of substantial  amounts of our common stock in the open market, or
the  availability of such shares for sale,  could adversely  affect the price of
our common stock.  We had  35,255,445  shares of common stock  outstanding as of
April 30, 2005.  The  following  securities  that may be  exercised  for, or are
convertible  into,  shares of our common stock were issued and outstanding as of
April 30, 2005:

        o   Stock options to purchase  3,413,245 shares of our common stock at a
            weighted average exercise price of approximately $3.59 per share.

                                       23
<PAGE>


        o   Warrants  to  purchase  11,769,784  shares of our common  stock at a
            weighted average exercise price of approximately $2.50 per share.

        o   Convertible  Notes which will convert into  1,199,890  shares of our
            common stock at an average  conversion  price of $0.20 per share and
            warrants which are  exercisable  for 1,399,890  shares of our common
            stock at an exercise price of $1.00 per share.

        The shares of our common  stock  that may be issued  under the  options,
warrants and upon conversion of the notes are currently  registered with the SEC
or are eligible for sale without any volume limitations  pursuant to Rule 144(k)
under the Securities Act.

OUR INCORPORATION  DOCUMENTS MAY DELAY OR PREVENT (i) THE REMOVAL OF OUR CURRENT
MANAGEMENT  OR  (ii) A  CHANGE  OF  CONTROL  THAT  A  STOCKHOLDER  MAY  CONSIDER
FAVORABLE.

        We are  currently  authorized  to issue  1,000,000  shares of  preferred
stock.  Our Board of  Directors  is  authorized,  without  any  approval  of the
stockholders,  to issue  the  preferred  stock  and  determine  the terms of the
preferred  stock.  This  provision  allows the board of  directors to affect the
rights of stockholders,  since the board of directors can make it more difficult
for common  stockholders to replace  members of the board.  Because the board of
directors is responsible  for appointing  the members of our  management,  these
provisions could in turn affect any attempt to replace current management by the
common  stockholders.   Furthermore,  the  existence  of  authorized  shares  of
preferred stock might have the effect of  discouraging  any attempt by a person,
through the  acquisition of a substantial  number of shares of common stock,  to
acquire  control of our company.  Accordingly,  the  accomplishment  of a tender
offer may be more  difficult.  This may be beneficial to management in a hostile
tender  offer,  but  have an  adverse  impact  on  stockholders  who may want to
participate in the tender offer or inhibit a stockholder's ability to receive an
acquisition premium for his or her shares.

THE ABILITY OF OUR STOCKHOLDERS TO RECOVER AGAINST ARMUS HARRISON & CO., OR AHC,
MAY BE LIMITED  BECAUSE WE HAVE NOT BEEN ABLE TO OBTAIN THE REISSUED  REPORTS OF
AHC WITH RESPECT TO THE FINANCIAL  STATEMENTS  INCLUDED IN OUR FORM 10-K FOR THE
FISCAL YEAR ENDED JULY 31, 2004,  NOR HAVE WE BEEN ABLE TO OBTAIN AHC'S  CONSENT
TO THE USE OF SUCH REPORT THEREIN.

        Section 18 of the Securities  Exchange Act of 1934 (the "Exchange  Act")
provides  that any  person  acquiring  or selling a security  in  reliance  upon
statements set forth in a Form 10-K may assert a claim against every  accountant
who has with its consent been named as having  prepared or certified any part of
the Form 10-K, or as having  prepared or certified any report or valuation  that
is used in  connection  with the Form 10-K, if that part of the Form 10-K at the
time it is filed contains a false or misleading statement of a material fact, or
omits a material  fact  required to be stated  therein or  necessary to make the
statements  therein not misleading (unless it is proved that at the time of such
acquisition such acquiring person knew of such untruth or omission).

        In June 1996,  AHC dissolved and ceased all  operations.  Therefore,  we
have not been able to obtain the  reissued  reports  of AHC with  respect to the
financial  statements  included  in the Form 10-K for the fiscal year ended July
31, 2004 nor have we been able to obtain AHC's consent to the use of such report
herein. As a result, in the event any persons seek to assert a claim against AHC
under Section 18 of the Exchange Act for any untrue statement of a material fact
contained in these  financial  statements  or any  omissions to state a material
fact required to be stated  therein,  such persons will be barred.  Accordingly,
you may be unable to assert a claim against AHC under Section 18 of the Exchange
Act for any  purchases  of the  Company's  Common  Stock made in  reliance  upon
statements  set forth in the Form 10-K for the fiscal year ended July 31,  2004.
In addition,  the ability of AHC to satisfy any claims properly  brought against
it may be limited as a practical matter due to AHC's dissolution in 1996.

                                       24
<PAGE>


ITEM 3.  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Not applicable.

ITEM 4.  CONTROLS AND PROCEDURES

        (a)     Evaluation of disclosure controls and procedures.

        Under the  supervision  and with the  participation  of our  management,
including our Chief Executive Officer and Chief Financial Officer,  we evaluated
the  effectiveness  of the design and operation of our  disclosure  controls and
procedures  as of April 30, 2005,  the end of the period  covered by this report
(the "evaluation date"). Based upon the evaluation,  the Chief Executive Officer
and Chief  Financial  Officer  concluded  that, as of the  evaluation  date, our
disclosure  controls and procedures are effective in timely alerting them to the
material  information relating to us required to be included in our periodic SEC
filings.

        (b)     Changes in internal controls.

        There were no  significant  changes made in our internal  controls  over
financial  reporting  during the three  months  ended  April 30, 2005 or, to our
knowledge,  in other factors that have  materially  affected,  or are materially
likely to affect, these controls.

        We are currently  undergoing a comprehensive effort to ensure compliance
with Section 404 of the Sarbanes-Oxley Act of 2002. As an accelerated filer with
a  fiscal  year  end of  July  31,  we must  first  begin  to  comply  with  the
requirements of Section 404 for the fiscal year ending July 31, 2005. We believe
that our present  internal  control  program has been  effective at a reasonable
assurance  level to ensure that our financial  reporting has not been materially
misstated.  Nonetheless,  through July 31, 2005, we will continue to review, and
where  necessary,   enhance  our  internal  control  design  and  documentation,
management  review,  and ongoing risk assessment as part of our internal control
program.

PART II.   OTHER INFORMATION

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

        ISSUER PURCHASES OF EQUITY SECURITIES

        We did not  repurchase  any shares of our common  stock during the third
quarter of fiscal 2005.

ITEM 6. EXHIBITS

        Exhibits (numbered in accordance with Item 601 of Regulation S-K).

                                                                 Exhibit No. or
Exhibit                                                         Incorporation by
  No.                           Item Title                         Reference
-------                         ----------                      ----------------
  3.1     Certificate of Incorporation, dated June 12, 1981
          (incorporated by reference to Registration Statement
          on Form S-1, File No. 333-112865, filed on February
          17, 2004)                                                     *

                                       25
<PAGE>


                                                                 Exhibit No. or
Exhibit                                                         Incorporation by
  No.                           Item Title                         Reference
-------                         ----------                      ----------------
  3.2     Amendment to Certificate of Incorporation, dated
          February 18, 1994 (incorporated by reference to
          Registration Statement on Form S-1, File No.
          333-112865, filed on February 17, 2004)                       *

  3.3     Amendment to Certificate of Incorporation, dated
          December 26, 1997 (incorporated by reference to
          Registration Statement on Form S-1, File No.
          333-112865, filed on February 17, 2004)                       *

  3.4     Amendment to Certificate of Incorporation, dated
          January 14, 2004 (incorporated by reference to
          Registration Statement on Form S-1, File No.
          333-112865, filed on February 17, 2004)                       *

  3.5     Certificate of Designation for Series A Preferred
          Stock, dated September 2, 2003 (incorporated by
          reference to Registration Statement on Form S-1, File
          No. 333-112865, filed on February 17, 2004)                   *

  3.6     Certificate of Elimination of Series A Preferred
          Stock, dated February 3, 2004 (incorporated by
          reference to Registration Statement on Form S-1, File
          No. 333-112865, filed on February 17, 2004)                   *

  3.7     By-Laws (incorporated by reference to Exhibit 3.4 to
          Registration Statement on Form S-1, File No.
          333-111101, filed on December 11, 2003)                       *

  10.23   Form of Stock Option Agreement issued to the
          Company's Board of Directors under the Company's 1997
          Stock Option Plan                                             +

  10.24   Form of Stock Option Agreement issued to the
          Company's Executive Officers under the Company's 1997
          Stock Option Plan                                             +

  31.1    Certification of Principal Executive Officer pursuant
          to Section 302 of the Sarbanes-Oxley Act of 2002              +

  31.2    Certification of Principal Financial Officer pursuant
          to Section 302 of the Sarbanes-Oxley Act of 2002              +

  32.1    Certification Principal Executive Officer pursuant to
          Section 906 of the Sarbanes-Oxley Act of 2002                 +

  32.2    Certification Principal Financial Officer pursuant to
          Section 906 of the Sarbanes-Oxley Act of 2002                 +

  *       Previously filed; incorporated herein by reference.

  +       Filed herewith.

                                       26
<PAGE>


                                   SIGNATURES


          Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.



                                        ALFACELL CORPORATION
                                        --------------------
                                            (Registrant)


June 9, 2005                            /s/ Robert D. Love
                                        ------------------
                                        Chief Financial Officer
                                        (Principal Financial Officer and
                                        Chief Accounting Officer)


                                       27